| ACCOUNTING POLICIES | ACCOUNTING POLICIES Principles of consolidation The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, investment valuation, receivables valuation, valuation of derivative financial instruments, revenue recognition, sales returns, incentive discount offers, inventory valuation, depreciable lives of fixed assets and internally-developed software, goodwill valuation, intangible asset valuation, cost method investment valuation, income taxes, stock-based compensation, performance-based compensation, self-funded health insurance liabilities and contingencies. Actual results could differ materially from these estimates. Cash equivalents We classify all highly liquid instruments, including instruments with a remaining maturity of three months or less at the time of purchase, as cash equivalents. Cash equivalents were $50.2 million and $75.2 million at March 31, 2017 and December 31, 2016 , respectively. Restricted cash We consider cash that is legally restricted and cash that is held as a compensating balance for letter of credit arrangements as restricted cash. Fair value of financial instruments We account for our assets and liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the fair-value hierarchy below. This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. • Level 1 —Quoted prices for identical instruments in active markets; • Level 2 —Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and • Level 3 —Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Under GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. Our assets and liabilities that are adjusted to fair value on a recurring basis are investments in money market mutual funds, trading securities, derivative instruments, and deferred compensation liabilities. The fair values of our investments in money market mutual funds, trading securities, and deferred compensation liabilities are determined using quoted market prices from daily exchange traded markets on the closing price as of the balance sheet date and are classified as Level 1. The fair values of our derivative instruments are determined using standard valuation models. The significant inputs used in these models are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2. Inputs used in these standard valuation models for derivative instruments include the applicable forward rates, interest rates and discount rates. Included in the fair value of derivative instruments is an adjustment for nonperformance risk. The adjustment for nonperformance risk did not have a significant impact on the estimated fair value of our derivative instruments. For additional disclosures related to our derivative instruments, see Derivative financial instruments below. The following tables summarize our assets and liabilities measured at fair value on a recurring basis using the following levels of inputs as of March 31, 2017 and December 31, 2016 as indicated (in thousands): p Fair Value Measurements at March 31, 2017: Total Level 1 Level 2 Level 3 Assets: Cash equivalents - Money market mutual funds $ 50,248 $ 50,248 $ — $ — Trading securities held in a “rabbi trust” (1) 63 63 — — Total assets $ 50,311 $ 50,311 $ — $ — Liabilities: Derivatives (2) $ 1,570 $ — $ 1,570 $ — Deferred compensation accrual “rabbi trust” (3) 65 65 — — Total liabilities $ 1,635 $ 65 $ 1,570 $ — Fair Value Measurements at December 31, 2016: Total Level 1 Level 2 Level 3 Assets: Cash equivalents - Money market mutual funds $ 75,177 $ 75,177 $ — $ — Trading securities held in a “rabbi trust” (1) 58 58 — — Total assets $ 75,235 $ 75,235 $ — $ — Liabilities: Derivatives (2) $ 1,816 $ — $ 1,816 $ — Deferred compensation accrual “rabbi trust” (3) 61 61 — — Total liabilities $ 1,877 $ 61 $ 1,816 $ — ___________________________________________ (1) — Trading securities held in a rabbi trust are included in Prepaids and other current assets and Other long-term assets, net in the consolidated balance sheets. (2) — Derivative financial instruments are included in Other current liabilities, net and Other long-term liabilities in the consolidated balance sheets. (3) — Non qualified deferred compensation in a rabbi trust is included in Accrued liabilities and Other long-term liabilities in the consolidated balance sheets. Our other financial instruments, including cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, finance obligations and debt are carried at cost, which approximates their fair value. Accounts receivable Accounts receivable consist primarily of trade amounts due from customers in the United States and from uncleared credit card transactions at period end. Accounts receivable are recorded at invoiced amounts and do not bear interest. Allowance for doubtful accounts From time to time, we grant credit to some of our business customers on normal credit terms (typically 30 days). We maintain an allowance for doubtful accounts receivable based upon our business customers’ financial condition and payment history, and our historical collection experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was $2.1 million and $2.0 million at March 31, 2017 and December 31, 2016 , respectively. Concentration of credit risk Cash equivalents include short-term, highly liquid instruments with maturities at date of purchase of three months or less. At March 31, 2017 and December 31, 2016 , two banks held the majority of our cash and cash equivalents. We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and receivables. We invest our cash primarily in money market securities which are uninsured. Valuation of inventories Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-out (“FIFO”) method of accounting, and are valued at the lower of cost and net realizable value. We write down our inventory for damage or estimated obsolescence and to lower of cost and net realizable value based upon assumptions about future demand market conditions and fulfillment costs. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory allowance represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped. Prepaid inventories, net Prepaid inventories, net represent inventories paid for in advance of receipt. Prepaids and other current assets Prepaids and other current assets represent expenses paid prior to receipt of the related goods or services, including advertising, license fees, maintenance, packaging, insurance, and other miscellaneous costs. Fixed assets, net Fixed assets, which include assets such as our corporate headquarters, land improvements, building machinery and equipment, furniture and equipment, technology infrastructure, internal-use software, website development and leasehold improvements, are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets or the term of the related capital lease, whichever is shorter, as follows: Life (years) Building 40 Land improvements 20 Building machinery and equipment 15-20 Furniture and equipment 5-7 Computer hardware 3-4 Computer software 2-4 Leasehold improvements are amortized over the shorter of the term of the related leases or estimated useful lives. Included in fixed assets is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance our Website and processes supporting our business. We capitalize costs incurred during the application development stage of internal-use software and amortize these costs over the estimated useful life of two to three years. Costs incurred related to design or maintenance of internal-use software are expensed as incurred. During the three months ended March 31, 2017 and 2016 , we capitalized $3.5 million and $4.7 million , respectively, of costs associated with internal-use software and website development, both developed internally and acquired externally. Amortization of costs associated with internal-use software and website development was $4.3 million and $3.8 million , respectively, for those respective periods. Depreciation expense is classified within the corresponding operating expense categories on the consolidated statements of operations as follows (in thousands): Three months ended 2017 2016 Cost of goods sold - direct $ 83 $ 77 Technology 6,685 5,920 General and administrative 930 192 Total depreciation, including internal-use software and website development $ 7,698 $ 6,189 Total accumulated depreciation of fixed assets was $187.6 million and $180.3 million at March 31, 2017 and December 31, 2016 , respectively. Upon sale or retirement of assets, cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in the consolidated statements of operations. Fixed assets included assets under capital leases and finance obligations of $21.5 million and $21.5 million , at March 31, 2017 and December 31, 2016 , respectively. Accumulated depreciation related to assets under capital leases and finance obligations was $10.0 million and $8.7 million , at March 31, 2017 and December 31, 2016 , respectively. Depreciation expense of assets recorded under capital leases was $1.3 million and $699,000 , for the three months ended March 31, 2017 and 2016 , respectively. Cost method investments At March 31, 2017 , we held minority interests (less than 20%) in seven privately held entities, which include PeerNova, Bitt, IdentityMind, Factom, MarkaVIP, View, Inc., and Ripio. The total aggregate amount of these investments (excluding any adjustments for impairment) was approximately $15.1 million . Based on the nature of one of our investments, we have a variable interest. However, because we do not have power to direct the investee's activities and we are not the investee's primary beneficiary, we therefore do not consolidate the investee in our financial statements. These investments are recognized as cost method investments included in Other long-term assets, net in our consolidated balance sheets. Earnings from the investments are recognized to the extent of dividends received, and we will recognize subsequent impairments to the investment if they are other than temporary. We review these investments individually for impairment by evaluating if events or circumstances have occurred that may have a significant adverse effect on their fair value. If such events or circumstances have occurred, we will estimate the fair value of the investment and determine if any decline in the fair value of the investment below its carrying value is other-than-temporary. In such cases, the estimated fair value of the investment is determined using unobservable inputs including assumptions by the investee's management. These inputs are classified as Level 3. See Fair value of financial instruments above. Because several of our investees are in the early startup or development stages, these entities are subject to potential changes in cash flows, valuation, and inability to attract new investors which may be necessary for the liquidity needed to support their operations. At March 31, 2017 , the carrying amount of our cost method investments was approximately $7.7 million . We recognized a $2.9 million impairment loss on one of these investments during 2016, which consisted of the entire carrying amount of the investment. We recognized a $4.5 million impairment loss on another one of these investments during the three months ended March 31, 2017 . These impairment losses were recorded in Other income (expense), net on the consolidated statements of operations. Noncontrolling interests During 2014, we formed tØ.com, Inc. (formerly Medici, Inc.) to develop blockchain and fintech technology as part of our Medici initiatives. tØ.com is a majority owned subsidiary of Overstock. During 2016, tØ.com completed the acquisition of a financial technology firm and two registered broker dealers, each of which was under common control with the firm from which the financial technology assets were purchased. The former owners of that firm hold noncontrolling interests in tØ.com. These transactions are described further in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. The proceeds for the acquisitions were financed by tØ.com through a note payable to Overstock that bears interest at a rate that approximates the Federal Funds Rate. tØ.com is included in our consolidated financial statements. Intercompany transactions have been eliminated and the amounts of contributions and gains or losses that are attributable to the noncontrolling interests are disclosed in our consolidated financial statements. Leases We account for lease agreements as either operating or capital leases depending on certain defined criteria. In certain of our lease agreements, we receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, tenant improvement allowances are amortized as a reduction in rent expense over the term of the lease. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. Treasury stock We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity. Precious metals Our precious metals consisted of $5.9 million in gold and $4.0 million in silver at March 31, 2017 and December 31, 2016 . We store our precious metals at an off-site secure facility. Because these assets consist of actual precious metals, rather than financial instruments, we account for them as an investment initially recorded at cost (including transaction fees) and then adjusted to the lower of cost or market based on an average unit cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Gains or losses resulting from changes in the value of our precious metal assets are recorded in Other income (expense), net in our consolidated statements of operations. There were no recorded gains or losses on investments in precious metals for the three months ended March 31, 2017 and 2016 . Goodwill Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually. When evaluating whether goodwill is impaired, we make a qualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount, we compare the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If the carrying amount exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss, if any, is calculated by comparing the implied fair value of the goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to the other assets and liabilities within the reporting unit based on estimated fair value. The excess of the fair value of a reporting unit over the amount allocated to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized when the carrying amount of goodwill exceeds its implied fair value. In accordance with this guidance, we test for impairment of goodwill annually or when we deem that a triggering event has occurred. There were no impairments to goodwill recorded during the three months ended March 31, 2017 or the year ended December 31, 2016 . Intangible assets other than goodwill We capitalize and amortize intangible assets other than goodwill over their estimated useful lives unless such lives are indefinite. Intangible assets other than goodwill acquired separately from third-parties are capitalized at cost while such assets acquired as part of a business combination are capitalized at their acquisition-date fair value. Intangible assets other than goodwill are amortized using the straight line method of amortization over their useful lives, with the exception of certain intangibles (such as acquired technology, customer relationships, and trade names) which are amortized using an accelerated method of amortization based on cash flows. These assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable as described below under Impairment of long-lived assets . Intangible assets, net consist of the following (in thousands): March 31, 2017 December 31, 2016 Acquired intangible assets $ 16,000 $ 16,000 Intangible assets, other (1) 1,487 1,356 17,487 17,356 Less: accumulated amortization of intangible assets (7,388 ) (6,443 ) Total intangible assets, net $ 10,099 $ 10,913 ___________________________________________ (1) — At March 31, 2017, the weighted average remaining useful life for intangible assets, other, excluding fully amortized intangible assets, was 3.50 years. Amortization of intangible assets other than goodwill is classified within the corresponding operating expense categories on the consolidated statements of operations as follows (in thousands): Three months ended March 31, 2017 2016 Technology $ 905 $ 726 Sales and marketing 20 350 General and administrative 20 22 Total amortization $ 945 $ 1,098 Estimated amortization expense for the next five years is: $2.8 million for the remainder of 2017 , $2.8 million in 2018 , $2.0 million in 2019 , $1.3 million in 2020 , $900,000 in 2021 and $100,000 thereafter. Impairment of long-lived assets We review property and equipment and other long-lived assets, including intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by comparison of the assets’ carrying amount to future undiscounted net cash flows the asset group is expected to generate. Cash flow forecasts are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. If such asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair values. There were no impairments to long-lived assets recorded during the three months ended March 31, 2017 or the year ended December 31, 2016 . Other long-term assets, net Other long-term assets, net consist primarily of cost method investments (see Cost method investments above) and related convertible notes and long-term prepaid expenses. Derivative financial instruments In 2014, we entered into a loan agreement in connection with the construction of our new corporate headquarters. We began borrowing under the facility in October 2015. Because amounts borrowed on the loan will carry a variable LIBOR-based interest rate, we will be affected by changes in certain market conditions. These changes in market conditions may adversely impact our financial performance, and as such, we use derivatives as a risk management tool to mitigate the potential impact of these changes. We do not enter into derivatives for speculative or trading purposes. The primary market risk we manage through the use of derivative instruments is interest rate risk on the amounts we have borrowed under the loan agreement relating to our new headquarters. To manage that risk, we use interest rate swap agreements. An interest rate swap agreement is a contract between two parties to exchange cash flows based on underlying notional amounts and indices. Our interest rate swaps entitle us to pay amounts based on a fixed rate in exchange for receipt of amounts based on variable rates over the term of the related loan agreement. The notional amounts under our hedges were $45.6 million and $45.8 million at March 31, 2017 and December 31, 2016 , respectively. Our derivatives are carried at fair value in our consolidated balance sheets in Other current liabilities, net and Other long-term liabilities on a gross basis. The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments under GAAP. Our derivatives have been designated and qualify as cash flow hedges. We formally designated and documented, at inception, the financial instruments as hedges of specific underlying exposures, the risk management objectives, and the strategy for undertaking the hedging transactions. In addition, we formally assess, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in the cash flows of the related underlying exposures. To the extent that the hedges are effective, the changes in fair values of our cash flow hedges are recorded in Accumulated other comprehensive income (loss) in the consolidated statements of changes in stockholders' equity. Any ineffective portion is immediately recognized into earnings. The variable-rate interest on the borrowing for our new corporate headquarters was capitalized during the construction period. The amounts in Accumulated other comprehensive income (loss) related to the cash flow hedge of the variability of the interest that was capitalized is reclassified into earnings over the depreciable life of the asset. During the three months ended March 31, 2016 , the amount of gains or losses in accumulated other comprehensive income (loss) that has been reclassified into earnings was not material and the amounts at March 31, 2017 that we will reclassify into earnings within the next 12 months is not expected to be material. We determine the fair values of our derivatives based on quoted market prices or using standard valuation models (see Fair value of financial instruments above). The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates. The following table shows the effect of derivative financial instruments that were designated as accounting hedges for the period indicated (in thousands): Cash flow hedges Amount of gain (loss) recognized in OCI on derivative (effective portion) net of tax Location of gain (loss) reclassified from Accumulated OCI into operations (effective portion) Amount of gain (loss) reclassified from Accumulated OCI into operations (effective portion) Location of gain (loss) recognized in operations on derivative (ineffective portion) Amount of gain (loss) recognized in operations on derivative (ineffective portion) Three months ended March 31, 2017 Interest rate swap $ 149 Interest expense $ 4 Other income (expense) $ — Three months ended March 31, 2016 Interest rate swap $ (1,020 ) Interest expense $ — Other income (expense) $ — The following table provides the outstanding notional balances and fair values of derivative financial instruments that were designated as accounting hedges outstanding positions for the dates indicated, and recorded gains (losses) during the periods indicated (in thousands): Cash flow hedges Location in balance sheet Expiration date Outstanding notional Fair value Beginning gains (losses) Gains (losses) recorded during period (1) Ending gains (losses) Three months ended March 31, 2017 Interest rate swap Current and Other long-term liabilities 2023 $ 45,573 $ (1,570 ) $ (1,816 ) $ 246 $ (1,570 ) Three months ended March 31, 2016 Interest rate swap Current and Other long-term liabilities 2023 $ 34,097 $ (3,991 ) $ (2,397 ) $ (1,594 ) $ (3,991 ) ___________________________________________ (1) — Gains (losses) recorded during the period are presented gross of the related tax impact. Revenue recognition We derive our revenue primarily from direct revenue and partner revenue from merchandise sales. We also earn revenue from advertising on our website and from other pages. We have organized our operations into two principal reporting segments based on the primary source of revenue: direct revenue and partner revenue (see Note 9—Business Segments). Revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. Revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times, which are calculated using the following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfillment source (either our warehouses, those warehouses we control, or those of our partners); (iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to eight business days from the date of shipment. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates. We evaluate the criteria outlined in ASC Topic 605-45, Principal Agent Considerations , in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded gross. If we are not the primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis. Currently, the majority of both direct revenue and partner revenue is recorded on a gross basis, as we are the primary obligor. We present revenue net of sales taxes. We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases and other similar offers, which, when used by customers, are treated as a reduction of revenue. We evaluate the revenue recognition criteria above for our broker dealer subsidiaries (see Note 10—Broker Dealers) and we recognize securities transactions (and the related commission revenue) on a trade date and gross basis. Based upon our historical experience, direct and partner revenues typically increase during the fourth quarter because of the holiday retail season and decrease in the following quarter(s). Direct revenue Direct revenue is derived from merchandise sales of our owned inventory to individual consumers and businesses. Direct revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels. Partner and other revenue Partner and other revenue is derived primarily from merchandise sales of inventory owned by our partners which they generally ship directly to our consumers and businesses. Partner and other revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels, including through our broker dealer subsidiaries in our Other segment. Club O loyalty program We have a customer loyalty program called Club O Gold for which we sell annual memberships. For Club O Gold memberships, we record membership fees as deferred revenue and we recognize revenue ratably over the membership period. The Club O Gold loyalty program allows members to earn Club O Reward dollars for qualifying purchases made on our Website. We also have a co-branded credit card program (see Co-branded credit card program below for more information). Co-branded cardholders are also Club O Gold members and earn additional reward dollars for purchases made on our Website, and from other merchants. Earned Club O Reward dollars may be redeemed on future purchases made through our Website. We recognize revenue for Club O Reward dollars when customers redeem their reward dollars as part of a purchase on our Website. We account for these transactions as multiple element arrangements and allocate revenue to the elements using their relative fair values. We include the value of reward dollars earned in deferred revenue and we record it as a reduction of revenue at the time the reward dollars are earned. Club O Gold membership reward dollars expire 90 days after the customer’s Club O Gold membership expires. When Club O Reward dollars expire, we recognize reward dollar breakage as Other income (expense), net in our consolidated statements of operations. Beginning in 2015, we enrolled a significant number of members in Club O Silver, a newly introduced Club O membership tier for customers who agree to receive promotional emails. Club O Silver members earned Club O Rewards on qualifying purchases that expire after 90 days from a qualifying purchase. We discontinued Club O Silver in October 2016, and as a result we do not expect further Club O Silver rewards breakage in the future. In instances where customers receive free Club O Reward dollars not associated with any purchases, we account for these transactions as sales incentives such as coupons and record a reduction of revenue at the time the reward dollars are redeemed. Co-branded credit card program We have a co-branded credit card agreement with a commercial bank for the issuance of credit cards bearing the Overstock.com brand, under which the bank pa |
